For the second consecutive year, Pakistan Engineering Company Ltd. (PECO), a sate-run unit listed at the stock exchange, has earned a net profit, after having incurred heavy losses for over a decade or so. . It has declared 25 per cent interim cash dividend this time to its shareholders as compared to 30 per cent final cash dividend for the previous year.
According to the provisional annual accounts, the company has earned gross profit of Rs223 million against total sales of Rs983 million. Thus, the company has shown net profit before tax of over Rs211 million during financial year 2006-07, resulting in highest earning of over Rs36 per share (of Rs10).
In comparison, the company had earned net profit of Rs113 million before taxation during the year 2005-06, and the total sales amounted to Rs835 million.
During the period under review, PECO produced 11,580 tons of transmission and telecommunication towers. It is the only qualified company to produce high voltage electricity transmission and distribution towers, and undertakes design, fabrication and galvanizing of steel towers of 500 kV, 220 kV, 132 kV, 66 kV and 11 kV electricity. It has secured/executed, in recent past, a large number of contracts for the supply of these towers to Pakistan Water and Power Development Authority (Wapda).
Total sales of transmission towers amounted to Rs597 million, telecom towers Rs308 million, concrete mixers Rs5 million and other products of Rs73 million.. The company has exported telecom towers through ZTE Corporation, China’s largest telecom manufacturers.
Total sales posted during the year under review registered an increase of 18 per cent over previous year (2005-06). There are no more non-performing bank loans, and financial charges have further declined compared to the corresponding period of previous year. Likewise, its overheads and fixed costs are lower at this stage.
PECO has orders in hand for fabrication of 132 kV and 11 kV transmission line towers amounting to Rs209 million. In addition, orders are in pipeline for similar steel towers valuing Rs270 million. Recently, the company has diversified its product range to include telecommunication towers, for which orders worth Rs17 million are under execution, whereas additional orders valuing Rs30 million are being negotiated. The company has signed an agreement with NOKIA for production of telecom towers of its global design, while it receives repeat orders from Huawei Technologies.
PECO was established at Lahore in 1948 in the private sector, later incorporated as a limited company in 1950 and was nationalised in 1972. The firm has been on the active list of privatisation list for many years but without any results. The long process of privatisation of the company by the previous governments played a major role in making it almost a sick industrial unit. As on June 39, 2004, the company had accumulated losses of Rs1,741 million.
Manufacturing of machine tools and power looms was discontinued way back in the 1990’s, and most of the workers and staff, over 600 in number, were then laid off under the voluntary separation scheme. In 2002, the government decided to close the remaining production units,that is, bicycle plant, furnace and rolling mill, pumps and motor sections and general engineering workshop. Consequently, all the regular and contract employees, totaling about 1,500 in number, were relieved under the compulsory separation scheme.
The company has been put back in operation under such difficult conditions. As a result of implementing pragmatic policies of the newly formed board of directors, dominated by the private sector members, the company has been transformed into a viable and profitable entity, once again. But a lot is yet to be done both by the owners and the management, to sustain the viability and profitability of the company on a long-term basis.
It may be recalled that PECO’s large variety of light engineering products remained popular for quality and performance for almost five decades. The product range of pumps, which competed well with reputed foreign makes like KSB pumps, included various sizes and different types of deep-well turbine pumps, submersible pumps and centrifugal pumps.
Likewise, machine tools, such as lathe, shaper, drilling machine and hacksaw were manufactured in accordance with international standards. Automatic power looms were produced in technical collaboration with Japan. A large number of these products were exported.
The outlook for the growth demand of these PECO products, domestically as well as internationally, is positive. There is however an immediate need to devise a medium-term and long-term business plan that includes modernisation of its depreciated machinery, as most of its production workshops are closed, primarily due to obsolescence. Since nationalisation of the company there has been no major investment to upgrade, replace and modernise the plant..
In the first phase, focus should be on immediate overhauling of its steel melting and rolling facilities and installing latest instrumentation and controls. The up-gradation of material handling equipment should compliment the initial refurbishment of machinery. In order to make plant machinery compatible, a large number of general-purpose machinery has to be added, in the second phase, such as material preparation equipment, fabrication equipment, machine tools and quality assurance equipment etc.
Acquisition of the latest state-of-the-art manufacturing technology is of prime importance. Production methods and procedures are to be placed on modern lines, with a view to reduce production cost. Likewise, it is required to seek the latest product design and engineering, before launching the manufacturing and marketing of its various products. This can possibly be achieved through promoting technical collaboration with foreign companies that are active in similar areas, under a long-term joint programme.
Also, the management may not lose sight of the fact that the backbone of any manufacturing industrial unit of this nature is a well-equipped design and engineering office and an aggressive marketing team. The company is devoid of human resources in both the areas and need to build up the same on priority basis.
While the government is promoting private-public partnership and has received an encouraging response from the private sector, it may be worthwhile to extend the partnership to the engineering sector too. It may prove to be rewarding to undertake modernisation of PECO under this arrangement, as a first step. The private sector majority shareholders could thus be asked to inject fresh equity for the purchase of modern machinery required to be installed at PECO and acquisition of the state-of-the-art technology for diversifying production base..